The aim of the research was to find out if private pension saving can improve people´s financial terms when they retire.The Icelandic contributory pension scheme is based on three pillars corresponding to a system of the World Bank in 1994. This essay is about one of the three pillars which is an individual, optional, workrelated saving, i.e. private pension saving. The pillar was founded to enable people to guarantee their financial standing in their old age and equalize consumption during their lifetime. The pillar was meant to increase individuals´ pension and national saving as well.If a saver has deposited 4% premium in a pension fund and his employer 8% he has right to 56% of his monthly wages on his retirement at 67. Life expectancy has increased and increase of elderly people is foreseeable. Today there is one pensioner to six employees. In 40-50 years the proportion will be one to two.Employees can postpone tax-payment. They can pay up to 8% of their wages as a premium. The premium is paid tax-free to private pension saving or a pension fund. The premium and the yield of the investment are tax-free until repaid, then the saver has to pay income tax.Depositiories repay private pension saving to the saver at the age of 60, as one payment if the amount is under l.056.772 IKR according to year 2011. The payment is indexed-linked, repaid monthly until the saver is 67 years old.The private pension saving is inheritable at a death of a saver according to inheritance law. The saving is not enforceable.Key words:• pension fund• Private pension saving• Yield of investment• Profit• Tax